Zoom Communications just gave investors a gift after a recent pullback, says Tony Zhang
Zoom just gave investors a gift by pulling back to the level that was to be its summer breakout level. The stock spent March through July fighting resistance at $95. It broke through in late July and hasn’t traded back below that level since. A broader market and software industry pullback has now pushed the stock back down to test that old resistance as new support. Underneath the stock price, the business itself has quietly become one of the most profitable, best-capitalized names in software. Wall Street still prices it like a company stuck in neutral. That gap between the business and the valuation is the opportunity that I see. The pullback now provides a strong entry setup for a defined-risk bullish options trade. Timing & outlook Zoom pulled back to $95, the exact level that capped the stock as resistance from March through July before it broke out in late July. That old ceiling is now acting as the floor. A bounce off $95 that clears $103 opens the door back toward the top of this year’s range of $115 Zoom carries a strong relative strength score of 9 out of 10 versus the S & P 500, with its six-month trend still bullish even after this month’s pullback. Technology has held up far better than the rest of the market lately, with the Nasdaq-100 barely budging during last week’s 628-point Dow selloff, even as the broader software group takes a breather after a strong summer run. Fundamentals Atfirstglance Zoom’s headline net margin looks too good to be true. The reported 65.2% trailing net margin includes a $1.6 billion one-time gain on strategic investments booked last quarter. Strip that out and Zoom’s non-GAAP net margin still sits about 36% last quarter. Even still,thevaluationremains incrediblycompelling. Even using the normalized margin, Zoom is still running profitability well above the software industry average while trading at a discount forward multiple. Bullish thesis Zoom is meaningfully more profitable at a discount. Non-GAAP net margin ran roughly 36%, yet the stock trades at just 15.7 times forward earnings versus roughly 17 times for the software sector. The buyback is real and well-funded. Zoom repurchased 3.7 million shares last quarter and still has about $1.3 billion left on its authorization against a $7.2 billion cash position. Enterprise demand keeps stabilizing. Enterprise revenue grew 7.8% to $787.5 million and now makes up 61.6% of total revenue, with net dollar expansion holding at 99% over the trailing twelve months. Options trade Given the pullback to a well-established support level, Zoom’s strong relative strength, and a valuation that lags its own profitability, we’re looking at a bull put spread to bet on a bounce while keeping the risk limited. The trade: Sell Oct. 16, 2026 95/90 Put Vertical @ $2.20 Credit The Individual Legs: Sell to Open the Oct. 16, 2026 $95 Put Buy to Open the Oct. 16, 2026 $90 Put Max reward: $220 if Zoom is above $95 at expiration Max risk: $280 if Zoom is below $90 at expiration Breakeven: $92.80, the level above which the trade starts showing a profit at expiration. View this Trade on OptionsPlay for Updated Pricing . Summary Zoom has turned an old resistance level into new support, and the fundamentals look better than the stock’s multiple suggests. The core business runs a real non-GAAP margin near 36% while trading at just 15.7 times forward earnings, a discount to the software sector. Management is backing that gap with real buybacks, and enterprise demand keeps holding up. The October put spread offers a defined way to play a bounce off support, risking $280 to make $220, without requiring the stock to make a big move to produce that income. DISCLOSURES: Zhang has a position in ZM. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
